As global investors increasingly prioritize sustainability, Environmental, Social, and Governance (ESG) factors have become critical pillars of corporate governance. Vietnam, as an emerging market, is experiencing a growing shift toward integrating ESG considerations into business practices. Companies are not only adopting ESG frameworks to meet global expectations but also to enhance long-term value, mitigate risks, and navigate an increasingly complex regulatory landscape.

This article explores how Vietnam’s corporate sector is responding to the global push for sustainability, the evolving role of ESG in corporate governance, and the opportunities and challenges faced by businesses in aligning with international standards.

The Rising Importance of ESG in Corporate Governance

In recent years, ESG factors have become a key focus in corporate governance worldwide. Investors and stakeholders are no longer solely interested in financial returns; they are increasingly evaluating companies based on their environmental stewardship, social responsibility, and governance practices. This shift has been driven by global initiatives such as the United Nations’ Principles for Responsible Investment (PRI) and Sustainable Development Goals (SDGs), which emphasize the need for sustainable and ethical business operations.

For businesses in Vietnam, the integration of ESG into corporate governance frameworks is not just a trend but a strategic imperative. The Vietnamese government has made strides in aligning local laws and regulations with international standards, especially in areas such as environmental protection, labor rights, and corporate transparency. Companies that fail to adapt risk losing access to international markets, facing regulatory penalties, and damaging their reputations in the global arena.

Vietnam’s Regulatory Push for Sustainability

Vietnam’s regulatory landscape is evolving to support ESG-focused corporate governance. In 2020, the Vietnamese government introduced the National Green Growth Strategy (2021-2030), which aims to reduce greenhouse gas emissions, promote sustainable energy, and enhance environmental protection. These initiatives reflect Vietnam’s commitment to aligning its corporate practices with global sustainability goals.

Additionally, the Vietnam Stock Exchange has introduced a set of guidelines on corporate governance, emphasizing transparency, ethical business practices, and sustainability reporting. Companies listed on the stock exchange are now required to disclose their ESG-related practices, such as how they manage environmental impact, foster diversity, and ensure compliance with anti-corruption measures.

These regulatory developments have prompted businesses across Vietnam to re-evaluate their governance structures, placing greater emphasis on ESG factors to meet both local and global expectations.

Environmental Factors: Navigating Climate Risks and Sustainability

Vietnam is particularly vulnerable to climate change, with its long coastline and reliance on agriculture making it susceptible to rising sea levels and extreme weather events. As a result, businesses operating in Vietnam must now consider environmental risks as part of their governance and long-term planning.

Many companies are adopting sustainable practices such as reducing carbon emissions, improving energy efficiency, and investing in renewable energy. These initiatives not only help businesses mitigate environmental risks but also attract global investors who are increasingly seeking to fund sustainable ventures.

For example, Vinamilk, one of Vietnam’s largest dairy companies, has implemented comprehensive ESG practices, including waste management and renewable energy projects, to reduce its environmental footprint. Such initiatives have bolstered its reputation among international investors and made the company a model for sustainable business in Vietnam.

However, integrating environmental considerations into corporate governance is not without challenges. Companies may face high upfront costs for transitioning to green technologies and implementing sustainability initiatives. Despite these hurdles, the long-term benefits of adopting environmentally conscious governance outweigh the costs, as it helps companies future-proof their operations and gain a competitive edge in the global market.

Social Factors: Labor Rights and Ethical Business Practices

The “S” in ESG stands for social factors, which include a company’s approach to labor rights, diversity, and ethical business practices. As Vietnam continues to integrate into global supply chains, international scrutiny of labor practices has intensified. Global buyers and investors increasingly expect Vietnamese companies to comply with international labor standards, such as ensuring fair wages, workplace safety, and preventing child labor.

Vietnam’s membership in free trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union–Vietnam Free Trade Agreement (EVFTA) has further heightened these expectations. These agreements include provisions related to labor rights and corporate governance, which compel Vietnamese businesses to adopt socially responsible practices.

Leading Vietnamese companies, such as Vingroup, have taken proactive steps to address social factors within their corporate governance frameworks. This includes fostering workplace diversity, providing education and training for employees, and implementing strict anti-discrimination policies.

For businesses, embracing social responsibility is not only a regulatory requirement but also a way to build stronger stakeholder relationships and attract international investment. Companies that prioritize their employees’ well-being and foster ethical supply chains are better positioned to thrive in a global marketplace increasingly focused on ethical standards.

Governance: Strengthening Corporate Accountability

The governance aspect of ESG focuses on how companies are managed and how they ensure accountability, transparency, and ethical behavior. Corporate governance in Vietnam is undergoing significant reform, driven by both domestic pressures and global trends. The Vietnamese government, through the Corporate Governance Code of Best Practices, has emphasized the need for better transparency, stronger board oversight, and more robust risk management practices.

One of the key governance challenges for Vietnamese businesses is improving board diversity and ensuring that decision-making processes are transparent and aligned with shareholder interests. Furthermore, combating corruption remains a major governance issue in Vietnam, with companies facing heightened scrutiny under anti-corruption laws.

To adapt, many companies are implementing stricter compliance programs, fostering more transparent governance practices, and ensuring that they adhere to global anti-bribery standards, such as the UK Bribery Act and the U.S. Foreign Corrupt Practices Act (FCPA). By strengthening their governance frameworks, businesses can not only avoid legal pitfalls but also gain greater credibility with international investors.

The Challenges of ESG Adoption in Vietnam

While Vietnam’s corporate sector is making strides in adopting ESG principles, there are significant challenges that businesses must overcome. One of the main hurdles is the lack of standardized ESG reporting frameworks. Unlike more developed markets, where ESG disclosure practices are well-established, Vietnam is still in the early stages of creating a uniform reporting system that companies can follow.

Additionally, many small and medium-sized enterprises (SMEs) struggle with the costs of implementing ESG initiatives. For these companies, the expense of transitioning to sustainable business practices or enhancing corporate governance structures can be prohibitive. However, as the demand for ESG-compliant businesses grows, companies that fail to adapt may find themselves at a competitive disadvantage.

The Path Forward: Embracing ESG for Long-Term Success

As Vietnam’s corporate sector continues to integrate into the global economy, adopting ESG principles is no longer optional—it’s essential for long-term success. Companies that prioritize sustainability, social responsibility, and strong governance will be better positioned to attract international investment, comply with evolving regulations, and mitigate risks associated with environmental and social issues.

At Corporate Counsels, we specialize in guiding businesses through the complexities of ESG adoption in Vietnam. Our team of legal experts can help you develop and implement tailored corporate governance strategies that align with global sustainability standards. Whether you’re looking to enhance your compliance programs, improve transparency, or navigate ESG reporting requirements, our firm is here to assist.

Contact us today to learn more about how we can help your business thrive in Vietnam’s evolving ESG landscape.